Rental Income Returns overdue

M

MsGinger

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Hi All,

I'm helping a friend get their tax affairs up to date. They have a rental property, on which they have not declared the income. They have not registered for income tax.

I have gone through their receipts etc and have the taxable amount for each year, but I have a few questions.

Is the first step to register them for income tax?

Once registered, do I then fill out a separate form 12 for each year?

They re-mortgaged the property after the first year. The re-mortgage amount was not used on the rental property. If for example the original mortgage was for 40k and they re-mortgaged for 120k, is the correct apportioning of the interest to put against rental income 33.3% of all interest?

I am aware that late payments attract interest of 10% per annum. Should this interest amount be calculated from the 31st Oct when the preliminary tax is due or from 31st Oct the following year?

This person has gone over the PRSI threshold each year so can I assume that it is only 41% (or 42% for some years) + the 2% health levy that is taken from the net rental income?

Finally, if making a disclosure and paying interest, is it likely that they will also be hit with a penalty? They want to get their tax affairs up-to-date but there has not been any contact from Revenue to do so. The amount due (without adding interest) is likely to be quite low - approximately 2-3k.

Thanks for any help,

Ginger
 
You are on very sticky ground if you are "helping" or advising this person without knowing what exactly you are doing. Your friend is technically in tax default and as such is exposed to potential imposition of interest and penalties on their liability and is also exposed to possible prosecution for failure to file returns. These risks will be magnified if they file incorrect returns and/or erroneously underpay their liabilities. They would be well advised to seek professional advice as a matter of urgency.
 
Is your friend registered with the PRTB? If not then your question is somewhat irrelevant as he can't offset any interest against rental, irrespective of what proportion of the mortgage corresponds to what.

That's the first step. Not being registered makes the subsequent calculations a lot easier but the end result a lot more painfull.
 
Yes they are registered with the PRTB so that side should not be a problem.

I realise I have no formal experience doing a rental return - however from the information I have gathered, there is not a whole lot to getting the taxable net figure i.e. rental income less allowable expenses. All the expenses I have included have receipts etc and are all genuine e.g. agency letting fees, mortgage interest, refuse collection, appliance servicing, house insurance. They have kept very good records, just never got around to doing the returns.

Should they just do the returns and wait for Revenue to get back to them regarding interest & penalties and/or prosecution?

Just thought of something else - I have not at the moment included wear & tear of furniture etc. They purchased the house & contents together (showhouse - so was completely furnished). The house (inc contents) was under the SD threshold for investors at the time. If the contents were not included separately on the purchase, can they still claim for wear & tear?
 
MsGinger said:
If for example the original mortgage was for 40k and they re-mortgaged for 120k, is the correct apportioning of the interest to put against rental income 33.3% of all interest?
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40k of 160k is 25%

As ubiquitous said, advising a friend without having full knowledge of the issues involved is putting you in a difficult position.
If you make any errors in their returns they are not likely to be very grateful for your help - tell them to seek professional advice (which is tax deductible)
 
Total mortgage 120k, original mortgage 40k.

These are not the correct figures just examples.

Thanks for advice but can you advise what other issues might be involved? Is it not as simple as gross rental income less allowable expenses to calculate net rental income & tax due? (leaving out interest & penalties)
 
Do not register for Income tax at this stage, if your friend is happy for returns to be submitted, send them in and Revenue will advise you whether case needs to be registered for self assessment. Interest, penalties and final liability due will be calculated by them and they will advise your friend in due course. Wear and Tear is 12.5% of cost of furniture and is allowable deduction over eight years.
As a matter of interest what would net profit be for each outstanding year?
 
Year 1 - approx €1400
Year 2 - approx €2200
Year 3 - net loss of approx €225 (problem tenant)
Year 4 - approx €2400 but awaiting copy of statement of interest.

These figures include guess for wear & tear @ €500 per year. I have yet to get full itinerary of contents but it was a fully furnished 2 bed house so I think this is on the lower side.
 
Submit Form 12's for all years and if they are processed as same your friend may not incur any additional penalties. Nothing to loose. Revenue use a guide of 3000 profit (if only one property) on Rental income for dealing with someone under self assessment.
Have you read through leaflet IT70 available from Revenue to ensure your friend is claiming all deductions from Rental Profit.
 
Your profit figures look surprising low if your mortgage is only 40K. I realise you are only using hypothical figures. But the interest on 40K would not be a lot. Why don't you post the real figures and you will get better feedback. I see nothing wrong with your friend doing the returns, make sure you are not liable for any errors though and make this clear to your friend. By searching AAM and revenue websites you will find a lot of information on this subject. I too would just submit the returns for each year and wait for revenue to come back to you. Maybe with a letter apologising for being late and giving reasons. Alternatively pay an accountant to do it and save yourself the stress. It may actually save your friend money. Write a list of all the furniture in the house and it's purchase price to have a clearer idea of the value before you do the wear and tear percentage.
 
advisor said:
. Revenue use a guide of 3000 profit (if only one property) on Rental income for dealing with someone under self assessment.
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Sorry for hijacking this thread. Advisor has someone in revenue said this is the way they approach rental income profit. I take it to mean that in general Revenue get suspicious if you have one property and don't declare at least 3K profit.
 
I have to agree with Ubiquitous that it's crazy you helping out if you are asking these quite simple questions.

I wouldn't let a friend of mine build a wall for me if I found out they were on a website asking how to stick 2 blocks together.
 
No, Revenue use this figure as a guide, it's not set in stone. But the reason I clarified re one property was that if you let ten properties and total profit was under 3000 you would be taxed as self assessed because it is seen as a business. If Returns are submitted as Form 12's for back years they may just process them on face value but Form 11's may be required in subsequent years, as I said nothing set in stone it's just a guide.
 
advisor said:
if you let ten properties and total profit was under 3000 you would be taxed as self assessed because it is seen as a business.
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Are you sure that you're not confusing this with the fact that a PAYE worker with c. €3K+ in non PAYE income will be treated as self assessed? This happened to me when I hand c. €3K "income" from an ESPP scheme with the income tax paid via RTSO1.
 
No not confusing it with that. As I said nothing set in stone. Revenue assess each case on it's own merit but that's why I think it's worh just sending in Returns and see what happens.
 
advisor said:
No, Revenue use this figure as a guide, it's not set in stone. But the reason I clarified re one property was that if you let ten properties and total profit was under 3000 you would be taxed as self assessed because it is seen as a business. If Returns are submitted as Form 12's for back years they may just process them on face value but Form 11's may be required in subsequent years, as I said nothing set in stone it's just a guide.
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If you have taxable rental income of in excess of €3,174 or gross rental income before expenses of €50,000 then you are a "chargeable person" and form 11s are required. Any income below these amounts can be dealt with on a form 12. However if you are chargeable one year you cannot revert back to a form 12 in subsequent years if income drops below the limits.

Number of properties doesn't come into it.

[broken link removed]
 
I never implied that OP could switch back and forth from year to year. The number of properties is taken into account as I am aware of an individual who had several Rental properties the majority of which where covered by "relief" i.e Section 23, Seaside resort etc., so that no liabilities were arising and they were informed by Revenue that they would have to Submit Form 11's as this was deemed to be a business venture.
 
advisor said:
I never implied that OP could switch back and forth from year to year. The number of properties is taken into account as I am aware of an individual who had several Rental properties the majority of which where covered by "relief" i.e Section 23, Seaside resort etc., so that no liabilities were arising and they were informed by Revenue that they would have to Submit Form 11's as this was deemed to be a business venture.
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If gross rental income exceeds €50,000 then a form 11 is required. That could be one property with rental income of €50,001 or ten properties with rental income of €5,001

From Revenue Tax Briefing

Non-PAYE income in excess of €50,000 gross
An individual who is in receipt of income chargeable to tax under the PAYE system but who is also in receipt of substantial gross income from other sources, such as trading, professional or rental income, which is covered or largely covered by losses, capital allowances and other reliefs will now be regarded as a "chargeable person" within the Self-Assessment system
 
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